Jockeys pressing their horses forward along a muddy track grace the cover of Ivan Ascher’s Portfolio Society. The horse race, Ascher claims, is the best image for understanding the financial society that we live in today. The common metaphor of finance as casino, which portrays investors simply as gamblers, captures the speculative nature of finance, but the horse race captures another essential dimension: contemporary finance is organized around bets on games being played by others. In other words, most of us are jockeys, while the financiers are the high rollers in the stands. In a financial society, there are “those who are free to run a race and those who are free to bet on its outcome.” You don’t need to be an investor yourself to be involved in finance. You are already incorporated in financial calculations others perform.
Everyday activities are routinely drawn into the arena of investment. Financial institutions gather information about your behavior and that of your neighbors when you borrow, when you surf the web, when you’re late on your bills, or when you buy coffee with your credit card. You may or may not have what traders call a strategy, but you are surely already part of someone else’s.
These interconnections present the key to understanding financial society in Ascher’s and two other recent books, Alex Preda’s Noise and Annie McClanahan’s Dead Pledges. Each in its own way tackles the venerable sociological problems of individual and society, structure and agency, because finance represents an often-invisible force that organizes how much power each of us has to control our own lives and to shape society and politics in the process.
Financial logics seem to start from individual decisions. For instance, if you have an individual retirement account, you may have been asked to complete a survey to measure your risk tolerance. But even the idea that you have something called a “risk tolerance” is already a presumption grounded in financial discourses that assume the centrality of risk to everyday life and raise risk-taking to the position of the highest human virtue. Information on risk tolerance is today bundled with other data to produce detailed measures of the creditworthiness of entire populations.
That information contains not just the data of one individual, but of others that live in a comparable neighborhood, shop in the same stores, or have other similar recorded behavior. Creditors then make decisions based on what appears to be individual creditworthiness and risk tolerance, but the truth is that each individual decision has been so diluted with other measures and other individuals as to make it unrecognizable.
As the 2008 financial crisis showed, securitization meant that the walls between what we somehow think of as separate spheres—the home, the street, the shop, the office, the bank—were so thin that one blow led to a general collapse. New financial instruments such as collateralized debt obligations, or CDOs—complex derivative default insurance contracts that combine multiple mortgages with different risks—allow investors the equivalent of taking an insurance policy on someone else’s house. As in the recent earthquake in Mexico City, the whole town shakes together—particularly if it was built on a lake bed. Even if your house seems safe, the building next door may topple it anyway.
In Noise, Alex Preda immerses himself in the world of retail traders, amateur investors who seem to be the ultimate lone wolves, seeking money from the comfort of their homes, but who are nevertheless intimately connected with each other and with the professional trading world. Retail traders try to gain some control in a world that highly rates individual decisions but does not seem to provide enough opportunities to make them. These amateurs persist even if they rarely make any consistent profits.
That should tell us something about the social nature not only of retail trading but of a “portfolio society,” in which almost everything we do is treated as investment and our human qualities have become capital. Retail traders want to be part of some game. Playing with electronic platforms, securities, stocks, and currencies allows them to have “a strategy.” More than providing money, it offers traders opportunities to perform individual autonomy and a mastery of the self that a 9-to-5 job hardly allows.
As Ascher would put it, the control these amateurs are seeking today means at best betting on the outcome of others’ races. Engaging in electronic trading at home involves “taking a position” both in the financial lingo (buying or selling a security) and in moral terms (escaping the routines and subjugation of employment to gain autonomy). Little do they know that the world of high finance and economic theorizing calls them “noise traders,” because they neither influence the big picture of finance nor rely on solid information. They would be better off, some economic experts say, if they didn’t trade. This sounds a lot like an insult for anyone with a desire for control.
Yet financial theorists think noise traders are actually important to the structure of financial markets, part of the interconnection the financial game requires. Preda shows that the worlds of professional and retail trading are not as distant from each other as others have made it out to be, with regular flows of people and information between the two realms. These flows include, for example, the education of incoming retail traders by professionals and the recruitment of professional traders from amateur ranks. Professional and retail traders are indeed connected, and they need each other.
The ability to predict risk has become more important than the ability to produce.
Even those who are not sitting at home in front of trading software, actively trying to game the financial system, are drawn into the web of finance. Credit and debt have become increasingly ubiquitous components of our daily experience, yet they appear to us as disconnected from the systemic forces that govern them. In Dead Pledges, Annie McClanahan looks at American novels, photographs, art installations, horror films, and other artworks that deal with debt, finance, home eviction, and crisis, showing that consumer debt links the system and the individual. She draws attention to connections across domains, revealing what can be difficult to see from within the muddle of everyday life. She analyzes, for example, how two apparently unrelated genres, behavioral economics and novels about the financial crisis, struggle with the attribution of responsibility for the recent financial meltdown.
Behind these two visions lies once again the problem of agency and structure, of how to link individual actions with systemic catastrophes. Behavioral economics is the growing strand of economic science that questions the long-standing assumptions of economic models about individuals as consistently rational optimizers. Through experiments, behavioral economists show that individuals, rather than being flawless calculative machines, are full of biases and confusion.
McClanahan argues that this type of analysis fails by design: while the financial crisis revealed an “impossibly complex, massive, and impenetrable” global financial infrastructure disposed to failure, behavioral economics blamed the irrationalities and individual biases of everyday people. That is certainly better than clinging to the model of Homo economicus. The characters are much more interesting, enriched with calculative shortcomings and cognitive biases. But we are still in the realm of homogenous models, where individual action is simply being aggregated to explain systemic outcomes. Quite logically, such models lead to solutions that involve changing individual incentives or applying “nudges,” without really digging into the unstable financial scaffolding that blew up in 2008.
Fiction films and novels have similar problems by design. Those of us who are constantly searching for movies to show in sociology classes know how hard it is to portray social and economic structures in fictional narrative. Movies must have individual main characters, a fact that almost inevitably dilutes the preeminence of structural factors. It has proved very hard to create fictions in which structures and institutions are characters as important as the human ones, without it looking clumsy and obvious.
The Rise of Finance
For McClanahan, credit crisis novels such as Martha McPhee’s Dear Money, Adam Haslett’s Union Atlantic, and Jonathan Dee’s The Privileges, while trying to capture “the reality of a structural, even impersonal, economic and social whole,” end up invoking generalized individual failures and inexplicable desires of consumption that led to the catastrophe. When all else fails, the characters in the novels bring in “culture,” largely seen as the generalization of individual desires, as when a character in Dear Money simply states that “we all wanted the money, … we mortgaged our futures for the Mercedes today, the new kitchen.”
At the heart of Dead Pledges is consumer credit connecting individual and systemic levels of finance. Consumer credit has mutated in recent decades as part of larger changes in capitalism, finance, and technology. Instead of helping people achieve some long-term consumption goal, credit became a way of making up for lost wages. This is partly why blaming hidden consumer desires for the crisis is so shortsighted.
Credit became central to a process in which finance started serving new purposes. In Portfolio Society, Ivan Ascher takes Volume 1 of Karl Marx’s Capital and rewrites it to explain what has happened with financialized capitalism in the last few decades.
The key change is that commodities have been replaced by securities. The peculiarity of securities is that they possess hedging value, the value of a financial security instrument to reduce risk exposure of a larger portfolio. It doesn’t matter what concrete human productive endeavor a financial instrument may facilitate, but rather how it contributes to hedging or diluting risk among other financial instruments. The ability to predict risk has become more important than the ability to produce. And workers are valuable not only for the labor they exchange for a miserable salary to keep themselves and their offspring alive, as Marx observed; capital can profit also from their credibility. Workers’ ability to fulfill promises can now be accurately predicted through sophisticated measures helped by the huge amounts of information collected in each of their transactions.
No one and nothing is too risky for an investment if the risk can be adequately quantified and therefore securitized. If you are not very credible, at least we can measure the exact amount of credibility you possess, based on glimpses of your behavior as well as that of others in similar positions as you. This is how millions of “subprime” home mortgages ended up bundled in credit default swaps of different ratings, serving an entirely different purpose than facilitating a house purchase by the borrower.
Contemporary finance is organized around bets on games being played by others.
Ascher, once again borrowing from Marx, explains the interconnections between the systemic and the individual. The exchange value of a commodity in Marx’s Capital was the amount of socially necessary labor time it contained. It wasn’t how long a single worker took to make a product, but rather a measure of the labor time a society needed to put into that product. The individual value of a commodity contained a social, collective measure, reflecting the whole system of commodities. In the same way, risk today is an individually measurable attribute but one that contains, in each security, the whole system of relations between securities. Risk is both individual and social.
Markets seem to mark value in practical and transparent ways; this is one of their most attractive features. Anything is worth as much as someone wants to pay for it. Even personal attributes like credibility are now transparently priced and turned into an asset to be bundled into derivative instruments, reducing the exposure of lenders. Intimate knowledge of the potential borrower is no longer necessary, McClanahan shows, when creditworthiness is scored with points.
What might seem like transparency here is an illusion, however. Just as with commodities, which for Marx were simple at first sight but would suddenly start dancing in front of us, finances are opaque, even for financial experts. The value socially attributed to securities is seen as a property of the security itself. Retail traders, Preda describes, believe what their screens transparently show: that they are trading between each other, while dealer-brokers who control the trading platform simply charge a transaction fee for matching buyers and sellers. But it’s all a mirage; their positions do not reach the stock or foreign exchange markets.
The software creates the illusion that traders buy and sell from each other through the online platform, when it’s the dealer-broker who is buying and selling from clients. Each trader’s order may even be lumped together with others and traded in a bundle with yet another broker-dealer. From the point of view of traders, they are in a bazaar, shouting prices, directly interacting with other buyers and sellers. But they are not.
Ascher gives an even more dramatic example of a similar illusion. Our ability to conduct simple retail transactions based on how much cash one has in one’s wallet is now vanishing. The current ubiquity of electronically mediated transactions may well be convenient. But it also means that we hardly trade directly between each other anymore. Every time you swipe your credit card to buy coffee, buyer and seller are each really transacting with a financial institution. Just read the small print next to your signature. They are not buyers and sellers in a marketplace, but borrowers whose “fitness to borrow” is thoroughly assessed by financial institutions.
Where do Morals Come From?
Each of these three books tries to grasp something about the expanding role of finance in society, so they may reasonably leave you very worried about the future. What to do? This is obviously not an easy question to answer. Understanding better how finance really works and how it affects us, waking up from the illusion, is an important step. But Marx himself emphasized that the discovery of the secret of commodities did little to alter the way producers saw commodities in their everyday business. Individually, we can at least question the ubiquitous exhortations to treat much of our own behavior as an investment—in yourself, your future, or your human capital.
The expansion and increasing influence of finance is not something individuals can address solely on their own. Predicting and hedging financial risk requires control over what Ascher calls the means of prediction. Seizing the means of prediction today would be as radical and perhaps as impracticable as Marx’s proposition that the means of production change hands. But we at least need to recognize more clearly that the means of prediction are a crucial site of current social and political battles.
Workers have leveraged capital’s need for labor in order to improve working conditions whenever and wherever they could. Leashing contemporary finance requires an equivalent leveraging of the current need of data for prediction. Much of this data is gathered from individuals often not even aware that collection is happening or where their information ends up. In other words, we need—at a minimum—to assert more control by citizens and democratic institutions over our information and what is done with it, the contemporary equivalent of the battle for working conditions. 
